Judgment Day for ECB: What the Experts Expect

It’s make or break time for the European Central Bank, which will outline on Thursday just how it plans to end a debt crisis in the euro zone.

Hannelore Foerster | Bloomberg | Getty Images

The European Central Bank headquarters in Brussels.

The central bank meets against heightened expectations that it will outline plans tobuy the government bondsof those euro zone members that have been weighed down by high borrowing costs and the past few days have been awash with reports on the possible size of any bond buying.

But just how aggressive will the central bank be? And have markets set themselves up for a disappointment?

Here’s what analysts have been telling CNBC about what they expect from the highly-anticipated meeting.

Scott Redler, Chief Strategic Officer at T3live.com, New York:

“(ECB President Mario) Draghi has been very stern. He will be doing a hybrid of what everyone is saying he will do. He has to have accountability and they (euro zone members in trouble) will have to request help before the ECB starts buying bonds to show the Street that there’s accountability.”

“What is important is that they (the ECB) are there if they are asked. I think they will do what they have to when they have to do it. It won’t be shock and awe but it will be enough to keep yields down.”

What Will the ECB Do?

Andrew Economos, MD & Head of Sovereign & Institutional Strategy Asia, JP Morgan Asset Mgmt thinks the ECB's plans to end the euro zone debt crisis will include buying bonds at the shorter end of the yield curve.

“The ECB has backed itself into a corner, but more importantly the politicians, regulators and central bankers are in agreement that the euro zone crisis has reached epic proportions so they have to come out with something today.”

“They will come in and buy the short-end of the yield curve up to three years, push down those yields. Unlimited bond buying is the key word here and then they will sterilize that by draining the liquidity out of the system.

“That’s step one, then they need to forgive some of the debt in places like Greece, Spain. But that comes later.”

David Malpass, President Encima Global, New York:

“(German Chancellor Angela) Merkel says there has to be conditionality to any plans announced. So I think the ECB will announce something but I don’t think there will be much impact on the structural reforms going on in Europe and that’s the key change we need to watch for."

“Yes I think there will be (market disappointment) because there has been this buying on anticipation. I don’t think the ECB can do much bond-buying because then it won’t be able to enforce the conditionality that they are talking about. Let’s say, if Spain goes into this kind of agreement, the ECB is saying it can control the situation. I don’t see how that’s possible even with short-term bonds.”

Will the ECB Unleash the 'Big Bazooka'?

Mansoor Mohi-uddin, Chief Currency Strategist, UBS Investment Bank thinks the markets will be surprised if the ECB announces an open-ended bond-buying plan and caps yields at the same time.

“The focus is on the word “unlimited” (bond buying). It is unsure if the Governing Council will agree to that.”

“Draghi doesn’t want to take too much pressure off the sovereigns to come and request help first… I would be surprised if the ECB said it would cap bond yields and have unlimited bond buying.”

Richard Martin, Managing Director, IMA Asia, Singapore

“Mario Draghi is only working on monetary policy, if he can secure it on monetary policy, the ball goes straight back to the politicians, and not to Brussels.”

“What we have to see after this is changes to state-owned enterprises, privatization, deregulation, opening up markets. The bottom line is they need to do what Germany did 10 years ago — they need to get productivity growth in their economies. When that starts, it’s a long process. It’s going to take us a year to get that in place.”

Andrew Robinson, Manager/FX Analyst, Saxo Capital Markets, Singapore

“What the market now needs is a bit more nuts and bolts to the actual plan. The expectations are quite high now that Mr. Draghi will give us something concrete in his press conference. The risk is that if he doesn’t deliver, then the markets go into disarray again.”

“Overall, if we are disappointed later today, I do see it (the euro) going back below the 1.26 level, possibly back down to the 1.24-1.25 figure, where we were at the start of yesterday’s trading in Asia.”